Sempra’s convertible preferreds trade up; Palo Alto, Twitter in focus; biotech active

By Abigail W. Adams

Portland, Me., July 11 – The active pace of convertibles issuance continued into the third quarter with the primary market pricing another $500 million before the market open on Wednesday after $1.5 billion in new paper hit the market on Tuesday.

Sempra Energy priced $500 million three-year $100-par series B mandatory convertible preferred stock before the market open on Wednesday at the midpoint of talk with a dividend of 6.75% and an initial conversion premium of 20%.

The deal traded up nicely, a market source said, and was wrapped around 101 in high-volume activity.

Palo Alto Networks Inc.’s recently priced 0.75% convertible notes due 2023 remained active in the secondary space. While the notes improved on an outright basis, they continued to trade largely flat dollar-neutral, a market source said.

Twitter Inc.’s 0.25% convertible notes due 2024 saw renewed attention in the secondary market with the notes moving alongside stock as the company embarks on an effort to remove fake accounts and as analysts predict a pull-back in the stock.

Biotech names were also among the volume leaders on Wednesday with Insmed Inc.’s 1.75% convertible notes due 2025 and Medicines Co.’s 2.75% convertible notes due 2023 seeing some trading action.

Sempra series B

In an overnight deal, Sempra priced $500 million of series B mandatory convertible preferreds prior to the market open on Wednesday.

Price talk was for a dividend of 6.5% to 7% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

The deal was priced concurrently with $1.1 billion, or 9.75 million shares, of common stock at a public offering price of $113.75, which were sold to forward purchasers as part of a forward sales agreement with the initial forward sales price $111.873125 per share.

The concurrent common stock offering was priced decently, a market source said. “It’s always a good play for a mandie because they’re supporting the common,” the source said.

The mandatory preferreds were trading up in the gray market. They were seen shooting to $100.875 from $100.25 before the opening bell.

The 6.75% preferreds continued to move up alongside stock and were seen wrapped around $101 early in the session with common stock at about $115.50.

The preferreds closed Wednesday at $101.3. Sempra common stock closed Wednesday at $115.68, a decrease of 1.38%.

The forward sales agreement was not a borrow facility and may have been more about accounting. “There’s plenty of stock to borrow,” the source said.

While hedge players do get involved in mandatory preferreds for the flip, they mostly appeal to equity income funds and outright accounts, a market source said.

“It’s a defensive play on the equity,” the source said. Sempra stock has had a good run recently, shooting up more than 15% mid-June.

While Sempra’s series B mandatory convertible preferreds saw more than 2 million shares trade during Wednesday’s session, trading of Sempra’s 6% series A mandatory convertible preferreds, which priced in January, was light, sources said.

Sempra’s 6% series A preferreds were down about $1 to $102.5 early Wednesday. They closed the day at $102.47, a decrease of $1.12, or 1.08%.

While the higher dividend on the series B preferreds may have taken “some of the zip” away from the series A preferreds, the drop on Wednesday was largely in line with common stock, a market source said.

Palo Alto day 2

Palo Alto’s recently priced 0.75% convertible notes due 2023 remained one of the top bonds traded in the secondary space.

The notes were up slightly on an outright basis their second day in the market but were moving largely in line dollar-neutral, sources said.

They were seen trading at 101.125 versus an equity price of $213.00 late in the afternoon. About $20 million of the bonds traded during the session.

“Nothing too exciting there,” a market source said.

Palo Alto priced $1.5 billion of the 0.75% notes prior to the market open on Tuesday.

The deal appeared to be well placed with few bonds trading for such a large issuance, sources said.

Twitter in focus

Twitter’s 0.25% convertible notes due 2024 returned to focus in the secondary space as the company makes headlines for its efforts to remove the user accounts of trolls.

The notes were largely wrapped around 103.5 in active trading on Wednesday.

The notes were seen trading at 103.543 versus an equity price of $43.83 in the late afternoon with about $18 million of the bonds on the tape, according to a market source.

While down as much as $1 early in the session, Twitter stock rallied to close Wednesday at $43.87, an increase of 0.27%.

Nomura Instinet initiated coverage of Twitter on Wednesday and predicted a pullback in Twitter stock.

The notes were also active and volatile on Monday with the notes trading as high as 106 and as low as 102 before settling around 103.8, according to Trace data.

Stock was also volatile Monday amid concern the removal of fake accounts would slow user growth.

Biotech active

Several biotech names were also active on the tape on Wednesday.

Medicine’s 2.75% convertible notes due 2023 were up about 1.25 points outright as the stock climbed to its highest point in recent months, a market source said.

The notes were seen trading at 105.4 versus an equity price of $39.77 in the late afternoon. About $9 million of the bonds traded during Wednesday’s session.

Medicine’s 2.5% convertible notes due 2022 also saw some action with $4 million of the bonds traded. They were seen trading at 128.82 versus an equity price of $39.57 in the late afternoon.

Medicine Co.’s stock closed Wednesday at $39.41, an increase of 1.91%.

Insmed’s 1.75% convertible notes due 2025 were also active as the stock made gains. The notes were seen trading at 94.6 versus an equity price of $25.42 with about $7 million of the bonds on the tape.

Insmed stock closed Wednesday at $25.53, an increase of 2.41%.

There was no news connected to the rise in stock, a market source said.

Mentioned in this article:

Insmed Inc. Nasdaq: INSM

Medicines Co. Nasdaq: MDCO

Palo Alto Networks Inc. NYSE: PANW

Sempra Energy NYSE: SRE

Twitter Inc. NYSE: TWTR

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